Barry speaks about mainstreaming natural capital

Barry gave a speech at a UN Environment Programme meeting on mainstreaming natural capital:

You don’t fool me!

I think I know what you guys at UNEP are up to…

You have invited me here as a politician.

You think of me perhaps as a “Tame Politician”?

A politician who gets it.

Who can talk about Natural Capital and sound as if he might actually understand it.

As if he might even care about it.

Of course you don’t want me to get into the technical stuff –

No data and case studies – leave all that to the professionals.

But it would be nice if I could set out how we can begin to bring Natural Capital in from the political cold.

To mainstream it.

And if I could be just a little bit visionary in the process

And give this smart technical audience some hope that all their work is not in vain that would be…well? – kind.

So…Let me disappoint you…

I’m not going to start talking to you as a politician, but as a businessman. Because that is what I was for more than a decade before I was elected to parliament almost twenty years ago.

And as a businessman I had a very simple philosophy:

First: manage your assets

Second: manage your risks

You should not have any confidence in a management team that did not know the value of its asset base.

And you would not have any confidence in a management team that failed either to properly quantify its strategic risks, or - having quantified them – that failed to take appropriate action to mitigate them.

The same is true for government.

Yet government after government has no proper account of its natural capital asset base.

And whilst most governments now have identified the risk of climate change and the linear economy as being a real threat to growth, they continue to fail to take the necessary steps to mitigate those risks adequately.

First a businessman - now an accountant:

Dr Richard Spencer from the Institute of Chartered Accountants of England and Wales puts the case for valuing our natural asset base pretty succinctly: he says “The argument for natural capital accounting is that measuring nature makes its contribution to the economy and our wellbeing visible and allows for effective decision making.”

Currently businesses extract an estimated $7trillion from the environment each year.

This is in the free non-renewable goods and the equally free renewable services which they utilize.

But this $7trillion does not appear on balance sheets, they are free goods – externalities as classical economics prefers to call them. No government account exists that charts their contribution to the national wealth. Yet they represent the annual income from a gigantic asset base that is quite simply the precondition of all other economic activity. What sort of economic managers do we have who fail to quantify an asset base of this magnitude and this importance?

In 2008 we were prepared almost to bankrupt ourselves to save our economic system. So why can we not recognize the crisis in our natural environment where we are seeing species decline and ecosystem collapse at rates unprecedented for literally millions of years, as shown in the fossil record.

Our natural capital debt is arguably a much more urgent issue than our financial debt. Yet our governments are failing spectacularly to reverse the decline of this asset base?

19.

Remember that number.

19.

It is the number of trees in Panama that were surveyed in one scientific study in 1980.

On those 19 trees they discovered 1,200 separate species of beetle.

80% of them - that is 960 species - were previously unknown to science!

As rainforests continue to be cleared; as ecosystems continue to be destroyed, we are losing species we never even knew existed.

Do you know the value of the cochineal industry?

Cochineal sells for between $50 and $80 a kilo. So the 200tons that Peru produces a year is worth between $10million and $16million

“cochineal production lowered the headcount poverty ratio in Mexican municipalities by 0.1, comparable to the entire effect of the Progressa conditional cash transfer program over a ten year period. Furthermore, cochineal production raised female literacy by 0.6 percentage points.”

19 trees.

960 species of beetle previously unknown to science.

We simply have no idea of the wealth that we are allowing to slip through our fingers?

Natural capital valuation enables us to do what I take it everyone in this room would in principle wish to do: to conserve, to protect our natural environment and to bequeath to our children the means to achieve a standard of living at least as good as our own and the capacity to meet their own similar responsibility to the subsequent generation.

But natural capital valuation doesn’t just help us good people do the right thing.

Its real power lies in enlisting to our cause, those who are quite happy to do the wrong thing. It gives those who may not share our motives a clear and increasingly quantified basis to take the right decision regardless of whether they agree with us about the intrinsic worth of landscapes, or the importance of biodiversity and ecosystems. It propels them to the right decision because it is the most economically efficient decision when one factors in a fair and reasonable assessment of the value of all the externalities.

And that brings me to Plato. The Philosopher, Plato.

You will remember Gyges Ring. In many ways it is the foundational story of western philosophy. In his great work The Republic, Plato imagines a ring that gives its owner the power to become invisible at will and through this thought experiment he explores whether an intelligent person would act morally if he did not have any fear of being caught and punished for acting unjustly.

You may have noticed that Gyges Ring has been in the news lately. Of course the media didn’t call it Gyges Ring although they might well have. They called it a “defeat device”.

Why did VW executives choose to install those defeat devices’ on their cars, ignoring liability risks in the US and EU that were large enough to ruin their company?

I guess none of us knows a complete answer to that.

But what makes the VW case so interesting is that we can all put ourselves into the VW executives’ situation. We may think - at least I hope we think, that their choices were stupid and wrong.

But we can all imagine being in that situation where the realisation dawns on you that your product just cannot pass the test and you have invested so much in it… and yet there is this little gizmo that can make all the bad data go away… and the temptation to avoid a major drop in your share price is just so utterly tempting that... you do it…you bet on regulatory failure.

And - You hope that nobody will find out – at least not on your watch.

The interesting thing about Gyges Ring is that everything depends on transparency. What are you capable of doing if nobody will ever find out?

What are you capable of trashing if you never have to face up to the true cost of what you have done?

You know why I hate being at a conference with Pavan Sukhdev? – It’s because everyone remembers that my best lines were originally his. But I’m going to say it anyway…

“We use nature because it is valuable.

We abuse nature because it is free.”

Natural Capital is simply off-balance sheet.

Its loss is unrecorded.

Its benefits under-priced.

Its depreciation un-costed in the profit and loss accounts.

In every single country in the world the economic structure and the accounting framework that we use has become Gyges Ring. It hides the true cost of our actions by counting as externalities the real value of those natural capital assets- those public assets – that we are destroying, degrading, and abusing.

We have developed an economic system that is good at using things but incapable of managing them sustainably for the future. And in government, there are just three sorts of politician in relation to natural capital:

The Slob.

He’s the one – and it usually is he - who doesn’t really care so long as he doesn’t have to face the consequences in his term of office.

The Arrogant Ostrich.

He’s the one who thinks that technology will come to the rescue and enable us to mitigate the damage, or adapt before the crunch comes or the resources run out.

And the Realist.

She’s the one – and it usually is she - who says: “what sort of politician would I be if I didn’t

First, Manage my assets…and

Second, Manage my risks?

The interesting thing about risk; is that human beings tend to ignore big risks.

When risks are too big we prefer to focus on the smaller risks which we think we can control rather than the major risks we fear we can’t.

The other thing about risk, of course, is that we discount future greater risks against present smaller ones.

And as far as politics is concerned that is a toxic combination.

Politicians need to be able to persuade people – Voters – that they can control things.

So we are much happier dealing with the small risks that we can manage than the bigger ones we fear we can’t.

And we need to persuade people – Voters – within a four year time scale; so of course we prefer to deal with present small problems rather than big long term ones.

It is the classic recipe for market failure.

And it precisely why we need regulation.

Strong, Coherent, Stable, Clear, Long-term regulation.

Instead of regulation you could call it discipline: because discipline simply means choosing between what you want NOW and what you want MOST.

Look.

Mainstreaming natural capital will only occur with

proper measurement,

robust methodologies and

adequate data

But the truth is that measuring the health and wealth of interconnected ecosystems and populations of species is extremely complicated.

Notional values ascribed to ecosystems that straddle national borders will have little meaning or relevance if there is no capacity to mobilise the necessary finance to secure their benefits. They will have little relevance too, if local communities feel that they are imposed from the “top-down” and take away immediate employment and other economic benefits in favour of some idea of future good.

In the UK, the National Ecosystem Assessment was published in 2011 and provided our first attempt to take stock of our natural capital.

Conducting an NEA is absolutely vital for all countries.

It is the first step to embedding knowledge of ecosystems and the value of their services into project and policy appraisals. This was rarely considered explicitly in UK impact appraisals before 2011 because the data was simply not available. Yet it is critical for decision-making.

Finance departments need to be concerned with national Wealth not just with national GDP. They need to be calculating what policies are doing to either add to or deplete Natural Capital and they need to be allocating resources accordingly.

I contacted our Office of National Statistics last week and they gave me an update on the work they have been doing.

They are on course to produce accounts covering all aspects of natural capital - full ecosystem accounts - as fully articulated satellites to the core National Accounts by 2020.

cross-cutting accounts covering domains such as air quality, navigation and the educational value of nature are being produced for publication later this year.

experimental accounts for some habitats: woodland, freshwater, farmland, as well as selected protected areas have already been produced.

To date their key findings are that

Accounts for woodland show the value of a tree standing is worth over 15 times its value if cut down for timber.

UK natural capital is currently estimated at £1.5 trillion, these are experimental and partial estimates which do not cover all of the services nature provides. The actual figure could turn out to be much larger. Work is underway to improve these estimates and incorporate more services.

Based on the current estimates, the total value of UK natural capital fell by around 5 per cent between 2007 and 2011.

Interestingly companies are increasingly recognising the risk to their business model from ecosystem failure or the scarcity of natural resources. They are concerned about higher costs going forward, and this is encouraging multinational companies to examine and protect their supply chains.

Greater measurement, disclosure and transparency amongst companies is currently focussed most successfully on the risks – and opportunities – related to climate change. The Carbon Disclosure Project, is now collecting data on the climate risks of over 5,000 companies to inform 822 institutional shareholders who control over $95 trillion in assets.

Mobilisation of financial resources remains elusive though. And here UNEP’s work around the Design of a Sustainable Financial System has been really important. It has helped to push the debate forward.

But disclosure, let alone action, is still falling way short of pledges: in September 2014, business leaders pledged to make their supply chains free from deforestation by 2020. But Forest 500 just reported that only 8% of corporates and less than 1% of investors have overarching zero deforestation policies.

Those who believe that voluntary corporate disclosure is the way forward are perhaps an example of the triumph of optimism over good sense.

I am angry – though I can’t say that I’m surprised - that companies can get away with failing to disclose a single climate risk to their shareholders, by claiming that they have considered climate risks to be “not significant”. And the SEC and the FCA just accepts that. What the hell were 196 sovereign states doing in Paris last year if climate risks are “not significant”?

We need a coordinated approach towards mandatory reporting not only of carbon but of companies’ natural resource use and their environmental impacts.

So I come to the fundamental core of what I want to say to you.

I believe that if we are going to mainstream Natural Capital we need to have.

A sound and comprehensive data set of Natural Capital stocks and flows provided through a National Ecosystem Assessment

Proper and transparent measurement of the public goods and services that are delivered through Natural Capital and Ecosystem Services.

Political mechanisms to incorporate this information into cost benefit analyses and policy decision making.

I believe that the regulatory framework

should work towards mandatory reporting and disclosure of climate and environmental risks and

should identify and eliminate subsidies and perverse incentives that are increasing environmental pressures.

So I want to finish up with a question to you which I think is urgent and important.

How can we do for biodiversity what Paris did for Climate Change?

Paris has given the world a mechanism that is capable of success. So let us think for a moment why Paris succeeded where Copenhagen and other UNFCCC COPs failed.

What was different in Paris was not the target or the framework – we’d known for years that the target had to be below 2° - the UNFCCC was the framework and the IPCC was the independent scientific advisory body. All that was in place – nothing new there.

What was different about Paris was that it respected sovereignty.

Paris created a delivery mechanism around what countries were prepared to do – not what they were told they ought to do. Voluntary undertaking, because of the problems countries foresaw for their own people and their own economies if they did not. It was a mechanism that elicited voluntary contributions in the form of INDCs, focussed them around the common long-term goal; and then measured them against that goal in a way that ensured objectivity and transparency with a view to strengthening them as required.

That is the point of the ratcheting process of review every five years to crank up ambition. A process where progress will be transparent with monitoring and verification being reported via national parliaments.

The quid pro quo for that transparency of course is that developed countries have agreed to provide at least $100 billion a year from 2020 to support developing countries to transition their economies to a clean low carbon future.

The money was important but I say again: the key here was sovereignty. Each country submitting its own INDCs – listen to the words: Nationally Determined contributions – their own pledges to their own people through their own parliaments. Pledges about what they considered they needed to do to resolve the problem of climate change that their own people were facing.

The finger wagging of Copenhagen had stopped. The days when NGOs and governments thought that all that was needed was a top down legally binding agreement that could say

You must do this! and

You must do this!

No wonder developing countries were suspicious and thought this just another way of rich countries blocking their growth.

Paris used a bottom up approach: enhanced by a collective agreement by all governments to come back to the table with higher targets every 5 years, working in sync to get the world on a pathway to a safe climate.

Sovereignty – instead of being the bar to cooperation – “don’t you dare tell me what to do!” suddenly became the impetus to an agreement: the best elements of national ownership were enlisted behind the common long-term goal ensuring the Paris agreement will become more ambitious over time.

Paris has not solved climate change – far from it – but it has set the world along a path which has the framework and now, critically, the mechanism whereby investment can be mobilised, emissions can be curbed and ultimately our economies will be decarbonised.

Instead of talk of mitigation, adaptation and dealing with the impacts of climate change being seen as a cost, the narrative has begun to swing towards opportunity and ambition.

So can we apply this to ecosystems and biodiversity?

Like Climate Change there is an existing international framework.

In biodiversity we have the CBD. It came into force in 1993 and in the year 2000 we set out what our long term target was: to end the loss of biodiversity.

In our overweening arrogance we even set a target date of 2010 by when we hoped to achieve it and after we missed that deadline we pushed the date back to 2020. In 2010 we adopted the Nagoya Protocol and the Strategic Plan for Biodiversity 2011–2020. Nagoya produced the 20 Aichi Biodiversity targets, framed under 5 strategic goals and to be translated into action through national biodiversity strategies and action plans.

Well we are now 2016 and no one in this room seriously believes that, with 106 parties to the convention still to submit an NBSAP that takes account of Nagoya, we will deliver the Aichi Targets by 2020.

It is true we don’t yet have a fully-functioning equivalent to the IPCC. IPBES is meeting this week in Kuala Lumpur but it still needs to hit its stride – and fast. We desperately need an over-arching, independent body that can help frame the debate and provide not just the science but an economically robust analysis of biodiversity and ecosystem services that is accessible to all.

At present item 5 f of the IPBES agenda in Kuala Lumpur is focussed on and I quote: “scoping a methodological assessment regarding diverse conceptualization of multiple values of nature and its benefits” It is not due to produce its final report until November 2017.

Come on guys!

Of course, the impacts on biodiversity and the erosion of natural ecosystems are undoubtedly complex. Valuation is complex. But we are simply not projecting a narrative that is sufficiently clear or accessible. If people do not see how their action can have any impact then they opt for inaction instead.

We need to create a mechanism whereby countries can be encouraged to project their ambition.

We need to ensure that the missing NBSAPs are not only produced, but that they are implemented.

I read Zimbabwe’s NBSAP at the week-end. As a document it is excellent. Really excellent.

It uses an ecosystem approach “integrating the management of land, water and living resources to promote conservation and sustainable use in an equitable way”. The protected area network covers 28% of the land area of Zimbabwe with National Parks consisting of 13%.

The trouble is implementation.

In the document itself the Zimbabwe government acknowledges: “Though Zimbabwe has sound environmental legislation, there is a perception that the economically productive sectors can infringe on the environment with impunity. This perception is enhanced by the fact that the environmental management agencies are failing to implement provisions of their acts and policies due to human and financial constraints. For example, national wildlife policy requires that detailed research be conducted before allocating annual quotas, but this has not been done consistently. Sentences for environment-related offences are lenient and fail to deter offenders, thus undermining enforcement efforts.”

NBSAPs are supposed to be the means of addressing biodiversity loss not simply chronicling it!

We need to galvanise countries around specific problems that they share in common. The truth is that the there is probably not much traction around Aichi target 10 in landlocked Switzerland; but for Australia or French Polynesia, coral reefs and ocean acidification are rather more pressing problems.

But Aichi target 8 on pollution including air pollution and pollution from fertilizers will not only resonate in Switzerland but also in China whose red dust storms were one of the key local issues that prompted action from the Chinese in the run up to COP21.

If we can quantify the scale of the problem in each of these areas and set out the potential effects on all those countries most directly affected or with greatest capacity to facilitate progress, then perhaps we should be asking each country to set out what their own INDC is going to be to combat this specific problem.

If we are clear in Aichi 11 that 10% of our oceans should be conserved as ecologically coherent networks of biodiversity and ecosystem services through a system of Marine Protected Areas then respectful of sovereignty should we not be asking each member state what they can pledge to bring this about?

Of course Biodiversity is more difficult than Climate Change because Climate has carbon: a simple single metric. Biodiversity may need to have multiple metrics.

Perhaps this what is happening in our oceans? 2014 and 2015 have seen a number of new ocean reserves designated – the UK with the Pitcairn and the Ascension Islands, New Zealand’s Kermadec Ocean Sanctuary, the Palau national marine sanctuary. With so little of the world’s oceans protected, there is still a long way to go – but the direction of travel is positive. More important the idea that we need a coherent global network of marine protected areas is one into which Countries are able to begin to fit their own aspirations and piece of the jigsaw.

And there are other problems that countries share in common

More than 5.5 million people die prematurely each year from the toxic air that we breathe.

500m people live in places where they consume twice as much as the rainfall replenishes each year and 663 million people simply do not have access to clean, safe water.

One third of all soils in the world are degraded – with 75% of this degradation being severe. And 10million hectares of cropland has to be abandoned every year.

Air pollution,

clean water systems and

fertile soil

are issues which affect us locally in different ways, but they are common systemic problems which we must begin to tackle in a common systematic way.

Aichi has 5 strategic goals and 20 targets

But it lacks a plan. And a goal or target without a plan is nothing more than a wish.

We need to grow up. We need to create a mechanism that will deliver what we want to be the case.